Contenu connexe Similaire à Csg dbriefs dec2012_submission_final (20) Csg dbriefs dec2012_submission_final1. The Dbriefs China Issues series presents:
China’s Investment
Environment: Trends and
Outlook
Chris Cooper, Partner, Deloitte & Touche LLP
Ken Dewoskin, Senior Advisor, Deloitte Touche Tohmatsu CPA Ltd.
David Hoffman, Vice President and Managing Director, The Conference Board’s
China Center for Economics and Business
December 13, 2012
2. Agenda
China at an inflection point
New leadership
The outlook
Question and answer
Copyright © 2012 Deloitte Development LLC. All rights reserved.
3. The lessons of 2012
After a full generation of reform, and three
orderly leadership transitions . . .
Levels and drivers of
growth transforming A new team of top Party leaders
Concerns about sustainability—
Imbalances at ―red at home and abroad
alert‖ level
Recalibration of China’s prospects
New external
environment & attitudes
Comprehensive MNC
investor strategic refresh
1 Copyright © 2012 Deloitte Development LLC. All rights reserved.
5. Polling question #1
Given your recent experience and media reports, has
China’s importance in maintaining your global market
share:
• Become more important?
• Stayed the same?
• Become less important?
• Don’t know/not applicable
Copyright © 2012 Deloitte Development LLC. All rights reserved.
6. Transformation of growth drivers
Big growth vs. quality growth
What generates the activity?
Who gets to spend the money?
Major reform growth driver
Net Exports
▼ Trade surpluses in steady decline
Global demand? Competitiveness?
Rising growth driver since 2003
Investment
▼ Largely State-driven
Rapidly declining ROI
Designated growth driver from 2008
Household
Consumption Growing but too slowly
Core structural problem
Sources: The Conference Board, Deloitte Research
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7. Household consumption
Will it rise to the challenge?
Percentage points (contribution to growth) Percent of GDP
30 50
Household Consumption
25 45 Government Consumption
GFCF
20 40
Net Exports
15 35
Real GDP Growth
10 30 Household Consumption
Share of GDP (RHS)
5 25
0 20
1996
1991
1992
1993
1994
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Decomposition of China’s GDP
(expenditure side)
Sources: PRC National Bureau of Statistics, CEIC Data Bases, The Conference Board
3 Copyright © 2012 Deloitte Development LLC. All rights reserved.
8. China’s middle class on the edge . . .
Move spending power from the state to households
ESSENTIALS
Radically improve wealth distribution
1. Demographic Shift – Moving toward a 2:1 worker-retiree ratio
2. Social Welfare Deficit – levels of precautionary savings
3. Services Sector “Marketization” – availability and choice
4. Consumer Wealth – options and security
5. Consumer Credit – Will it grow?
6. Inflation– structural drivers, state spending, and money supply
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9. Polling question #2
What are your expectations of China’s middle class and
the future of consumer spending?
• Continued strong growth of size and spending power
• Plateauing
• At risk of contracting
• Don’t know/not applicable
Copyright © 2012 Deloitte Development LLC. All rights reserved.
11. New leaders facing new challenges
1. Scrutiny and accountability from social media and global
journalism
2. More international experience in elite population
3. More international experience among leaders
4. First heavily hereditary regime
5. Much more complex economy, data weaknesses, and control
weaknesses
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12. Three big decision areas
Components Obstacles
Moderate Japan, disputed islands
regional China trade practices
diplomatic Vested interests
activity In and outbound investment
• Large SOEs/LNEs
• Regulators
Capital allocation
• Elite families
Reform & Holder of spending power
expand credit
Investment security Immature institutions
systems
Risk-based returns State ownership
Politicized private sector
Market-based transfer pricing No institutional independence
Implement Curtail monopolistic practices
SOE reform
Bankruptcy and debt constraints
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13. Time frames and outcomes
Wave 1: 0-18 months Wave 2: 12-48 months
Moderate No Scenario 3:
No Scenario 1:
regional Muddle
diplomatic New Isolation
Kingdom
activity
Yes
Leadership Choice Point
Implement
Scenario results
SOE reform
Yes
Reform & No Scenario 2: Yes Scenario 4:
expand credit Financial Some Pain,
systems Cliff Some Gain
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14. Polling question #3
Do you believe the risks of policy failure, and the
potential impacts on your business, in China are:
• High
• Medium
• Low
• Don’t know/not applicable
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16. Five “breaking” stories – December 2012
1. Corruption: China ranked 80th this year on this year’s Transparency
International index, with a score of 39 in terms of perceived corruption.
2. Shadow banking: New wealth management products (WMP) may
represent 13% of all lending, about US$1.9 trillion. Shanghai Huaxia
related WMP default sent shockwaves through the banking system.
3. Capital market performance: ―A‖ share markets worst in world. Wave of
layoffs at securities companies as revenues from underwriting, along
with the number of companies planning IPOs, both hit record lows.
4. China’s property market: A transaction media between the government,
enterprises and citizens. Additions to public and private debt since the
housing boom began in 2006 amount to ~200% of China’s 2011 GDP.
5. Signs of recovery: Proliferation of news articles, global stock market
reactions, and official reports from China celebrating end of slowdown
Source: Transparency International Corruption Perceptions Index 2012, Fitch Ratings
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17. Bulls and Bears
China in the years ahead: complex and unprecedented
Outlook on China’s
Worst now medium-term economy Unprecedented
behind us challenges ahead
Investment International
Top government
Bankers press
leaders
Government data Consultants
collectors
Who’s saying what (and why?)
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18. What many MNC China CEOs report today
Eleven and a half snapshots
• Oil and Gas: Lagging regulations (shale), highly protected sector
• Alternative energy: Vast overcapacity, pricing collapse, LNE stress
• Manufacturing: Soaring factor prices, slow growth domestic demand
• Retail: Steady 8%-10% annual growth, rising payroll, tight margins
• Engineering equipment: Collapse of demand, desperate domestic players
• Banking: Labyrinths of regulations, highly protected markets
• Equity investment: Entry & exit challenges, insider game, rule changes
• Infrastructure (rail, etc): Steady 10%-15% growth, margin pressure
• Catering services: Steady 15%-20% growth, soaring payroll costs:
• Luxury goods: Flat to -10% sales
• Automotive: -5% to +5% growth, move to smaller cars, tough regulations,
Japanese Auto: Freefall
Sources: Deloitte analysis,, NBS
10 Copyright © 2012 Deloitte Development LLC. All rights reserved.
19. Potential responses by MNCs
Three themes 1. Intense cost management
2. Right products and technologies
3. Super brands
And five steps
Prepare for potential increased attention from local tax and compliance
authorities, overcapacity, slowing demand, SOE/LNE competition
Set (or re-set) realistic expectations at corporate level for China market
growth and profitability
Accelerate 21st century new product development (NPD) thinking
regionally as well as nationally
Structure investment in organization and capacity for agility and watch
long-term commitments, accounts receivables and cash flows
Understand and align with local interests/champions to the extent
possible & prudent; explore new kinds of on-shore / offshore cooperation
11 Copyright © 2012 Deloitte Development LLC. All rights reserved.
20. Polling question #4
Over the next five years, which of the following do you think
poses the most significant challenge for U.S. companies in
China?
• Increasing competition
• Intellectual property issues
• Rising operating costs
• RMB volatility
• Slower growth
• Human capital/talent shortage
Copyright © 2012 Deloitte Development LLC. All rights reserved.
22. Join us January 10th at 11 AM ET
as our China Issues series
presents:
Beyond the Commodity
Downturn: China's and North
Asia's Impact on the Global
Mining Industry
23. CPE certificates are now available
for immediate download.
Click the Request CPE link in the
lower right hand corner of the
screen.
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